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Challenging insurance market should provide long-term stability: AmWins

28th February 2023 - Author: Kassandra Jimenez-Sanchez

Sharing its view on the property insurance market outlook for 2023, insurance broker AmWins said it expects the hard market to continue this year, which, in the long term, should provide a more stable insurance environment.

AMWINSAdditionally, themes like catastrophic weather events, inflation and economic uncertainty are going to be seen through the property segment of almost every industry.

The broker said in its State of the Market report: “In December we published a Q4 Property Market Update that explored all the factors shaping the trajectory of the E&S marketplace at that time. Unfortunately, nothing has changed for the better since.

“While we are unlikely to know the true state of the 2023 market until after the March 1 renewal cycle, we expect the hard market to continue with no softening in the foreseeable future.”

AmWins highlighted that catastrophic weather events have played a major role in hardening the insurance marketplace. For example, a major hurricane has made landfall in the US in five out of the last six years, wildfires have engulfed thousands of acres, there have been unprecedented winter storms, as well as flooding in the Midwest.

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“ Accounts with a large probable maximum loss (PML) and average annual loss (AAL) will continue to be in the spotlight. Carriers will offer less capacity and higher deductibles in an effort to manage their portfolio aggregates as well as concentrate on profitability,” said the broker.

Adding: “While individual states work to pass bills to provide relief, it seems unlikely that any will create meaningful change immediately.”

AmWins also noted that carriers are seeking more geographic diversity (non-CAT exposures) in their books, which will marginally help to mitigate rate increases for those accounts.

To this is added the fact that global inflation and financial and economic uncertainty are causing an increase in the cost of capital, adding to rising rates.

As rates and inflation increase, it becomes more and more important for the insured to revisit reported valuations and increase as necessary to account for true replacement cost and current rent price/business income, the broker explained.

According to the AmWins report, carriers say that insurance to value (ITV) is off by 30% or more, in addition, the difference in valuation that markets feel is needed varies greatly by region and occupancy.

Analysts noted that carriers will be addressing this with renewals, and accounts where values have remained unchanged and/or unsupported will see their rates increase dramatically and/or unsupported will see their rates increase dramatically or, in some cases, their submissions will fall to the bottom of the pile.

Reinsurance renewals for 1/1 were completed, but were not easy. Most saw increases in rate, retention, and net retentions throughout program structures as well as more restrictive terms and conditions, and now they look completely different compared to previous years.

London companies and Lloyd’s syndicates also experienced a very tough 1/1 reinsurance renewal and the majority are showing an appetite to take advantage of the current hard market conditions, AmWins noted.

Despite this, according to the report, several syndicates are needing to shed some of their most significant critical catastrophe exposed accounts from their portfolios. Many carriers are looking to write more non-CAT exposed accounts into their portfolios, including manufacturing and light industrial, and continue to participate across all layers of programs.

Numerous carriers in Bermuda are reducing their line size for CAT exposed accounts. Some of them are non-renewing and/or sparingly adding accounts that significantly contribute to their overall named windstorm (NWS) aggregate, especially those with Florida exposures, analysts noted.

“Rate increases are expected to be 30%+ and some markets are requesting a Values Limitation Clause,” said AmWins. “Despite all of this, the Bermuda market remains a significant source of buffer and excess capacity. We anticipate that underwriters will be inundated with submissions this year, therefore submission quality will be critical. For more technical risks, engineering reports will also be key.”

Regarding small businesses, AmWins expect that more of them will be pushed into the middle market due to inflation and carriers restricting binding authorities to manage exposures.

This will happen as they continue to focus on risk selection and balancing their portfolio with a mix of attritional and catastrophe exposures as well as GL.

The broker highlighted that once carriers have implemented changes following 1/1 reinsurance renewals, they will likely open in Florida again. Although this will be done cautiously, and without loading up too heavily before wind season, the report noted.

AmWins concluded: “There is no doubt this market is challenging, but it should provide a more stable insurance environment for the long-term.”

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